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In this file photo, Gan Golan, of Los Angeles, dressed as the "Master of Degrees," holds a ball and chain representing his college loan debt, during Occupy DC activities in Washington. In the face of reduced funding, public universities may be forced to raise out of state tuition rates.

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This WSJ article about Penn State raises some interesting issues. Ambitious public universities are finally recognizing that state governments will no longer fund them. Anticipating that overhead from the NIH and NSF is about to dry up, such schools are aggressively raising out of state tuition. Parents of potential out of state freshmen have the right to ask themselves; "am I getting my money's worth at School X?"

Each public university (including UCLA and Penn State) is running an experiment where it sketches out its demand curve. In the case of UCLA, we have sharply raised our tuition and applications have increased! One convenient explanation for this violation of the law of demand is that "all else isn't equal". There is an exogenous increase in foreign applicants as India and China grow richer and as UCLA collects more tuition $ it raises its quality and such quality improvements translates into increased demand to attend.

But, President Obama's speech the other night highlights that schools will start to be under more pressure to not be too aggressive in raising tuition. The President seeks to "jawbone" both the health insurance industry and universities into slowing consumer price increases. He is implicitly making an assumption about how free markets and competition works that he feels that he must get involved.

Returning to Penn State and UCLA, there is the interesting issue of how parents and their teenagers shop around and choose such "products". We know that the College Rankings matter in terms of perception but I would hope that the decision makers do their homework before making this important investment. Too many parents seem to focus on the quality of the buildings and local amenities (dorms and gym) and things you can see on a tour. I would hope that parents are smart enough to scout out the "unobservables" such as whether students really interact with the faculty and what goes on at the dorms late at night.